Utility Week

20 | 18TH - 24TH JANUARY 2019 | UTILITY WEEK Finance & Investment Going beyond the numbers "The CFO must understand the CEO and board's vision for the business, its core operating models and how those can be made better over time, even more so than before. Gone are the days when utility companies can afford to have a CFO whose sole focus is the treasury function – they must understand the challenges facing their operational colleagues and work even more closely with them to ensure their businesses thrive in this rapidly changing environment." Thus PA Consulting water specialist Richard Khaldi sums up the tra- jectory for the modern CFO. He adds: "The CFO can be an agent for change within the business and chal- lenge the status quo through their ability to examine and question the business cases put forward by operational colleagues. "This is particularly the case as the level of disruption increases. CFOs can ask key questions around the assumptions used for investment decisions, such as the level of ambiguity being considered and which future scenarios are being accounted for. "The CFO can also look across the busi- ness and understand which changes to business models and core systems and pro- cesses will add most value to their firm." Looking to the future Electricity North West's David Brocksom concurs and says CFOs will have to be far more involved in the business than they would have been 20 years ago. "The job has moved from report- ing the numbers to being very much part of the business. You have to use your skills to drive the business aspects. We have to get the costs down for the customers. The best way is to look at our processes, people and information. They are all intrinsically linked to the wider CFO role. "Everybody gets excited by dramas and mergers, but the reality is that our job is to innovate, improve what we are doing and to use our small size to effect change fast." WPD's Williams adds that as well as financial acumen, communication will also be a key skill as utilities adapt. "Being able to communicate what a DNO delivers for the money it receives to the outside world is as crucial as communi- cating a company's accounts as a standard way of presenting costs and profit," says Williams. "Take the recent tales of DNO profits in excess of 30 per cent, for instance – they are simply not true. So, people need to understand where our money goes – like the massive investment made in our net- works every year for example. "It's also useful if CFOs and FDs have an appreciation for the operational side of the business, particularly when you consider the huge changes ahead with EVs, battery storage, increasing network flexibility, etc. Our financial stakeholders are interested in this and appreciate the efforts DNOs are making to shape the future." Morrison's Martin Beesley says the "fundamentals" of being a CFO – main- taining liquidity, robust control measures and good leadership – will always apply. "As the pace of change continues to gather momentum, ensuring that appropri- ate values, frameworks and principles are in place will become even more important as this will provide the guidance for people to be creative, innovative and agile in order to build successful and sustainable busi- nesses," he says. The need to adapt UKPN's Jenny Harrison acknowledges that the skills "I and my finance team need also have to adapt. For example, our flexibil- ity strategy to market test almost all load- related reinforcement in ED1 requires the commercial skills to be able to value and price flexibility services," she says, adding: "We need to understand our non-financial as well as our financial performance and build lead key performance indicators that give our business the insight and levers to use to become more efficient. "We need to have strong data analysis skills in the team to deal with the volumes now available – and business partners who can interpret this and challenge and sup- port the business. And finally, greater auto- mation so our transaction processes are swi, accurate and free up people's time. "It's ultimately all about working col- laboratively as a finance function with our stakeholders, to bring the greatest benefits to our customers, and maintaining our focus on remaining the lowest cost DNO." As many of the CFOs interviewed for this report have revealed, they have devel- oped a greater understanding of the opera- tional side of their business, and the larger issues impacting the sector as a whole. But despite the challenges ahead, there is a sense of optimism and an appetite for not just retaining value – but adding the high- est possible value to their companies. Brought to you in association with digital horses to back and which are likely to be le at the starting gates will be in CFOs' orbit as they look to ensure a sound ground- ing for investment. Disruptive technologies like blockchain are seen as potential passports to a decen- tralised future. Electricity North West CFO David Brocksom is one of those keeping close tabs on the new system. He says that "while a lot of people get quite excited about block- chain", there are still issues to be resolved. "Once 51 per cent of a blockchain commu- nity have got the wrong message, it becomes fact. The record is altered and it is the new fact for the blockchain, so you have to find ways of making it secure. Call me a sceptic, but maybe's that's why I am a CFO. "As we go down a decarbonising path, we are going to need to manage the network at a distribution level far more tightly and closely than we have before. Technology has to solve that problem. Whatever returns people are offering, we cannot afford as a country to double the size of the network just to take double the amount of electricity. Technol- ogy will be a big enabler, but the question is which technology will it be and where will it be applied?" New funding streams As well as embarking on huge technological investments, the transition to a low-carbon economy is also opening up new funding streams and investor opportunities that the de CFO is looking to capitalise on. Increasingly, many pension funds and financial institutions are keen to buy into the green agenda. So is Anglian Water. Its treas- urer, Jane Pilcher, says it is looking to raise finance "in accordance with the Green Bond Principles. We have now issued five separate debt instruments, which are in accordance with those principles. They are financing our infrastructure. "If I look back over the past 12 or 18 months in terms of the focus from lenders and banks in respect of climate change, the change with the investment community has been absolutely tremendous. "Whether its equity or debt, people want their money to work sustainably. It's great to be able to access that sustainable source of funding as a privately owned company rais- ing funds in the public capital markets." Electricity North West's Brocksom agrees: "I think most pension funds are rightly look- ing for their investments to be managing a sustainability agenda. The whole investment community is becoming far more sustain- ability focused and I believe it will become mainstream faster than we think." continued from previous page CFO Insight report

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